SCHEDULE 14A INFORMATION
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/ / Soliciting Material Pursuant to Section240.14a-12
PACKAGING CORPORATION OF AMERICA
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[LOGO]
PACKAGING CORPORATION OF AMERICA
April 9, 2001
Dear PCA Shareholder:
You are cordially invited to attend the 2001 Annual Meeting of Shareholders
to be held at the Hyatt Deerfield located at 1750 Lake Cook Road, Deerfield,
Illinois 60015 at 10:00 a.m. on Tuesday, May 15, 2001.
Following this page is the formal notice of the meeting and PCA's Proxy
Statement. Also enclosed is a proxy card, a postage-paid envelope, PCA's 2000
Summary Annual Report and PCA's Annual Report on Form 10-K.
Your vote is important. Please return your completed proxy card in the
postage-paid envelope even if you plan to attend the meeting.
Sincerely,
/s/ Paul T. Stecko
Paul T. Stecko
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
[LOGO]
PACKAGING CORPORATION OF AMERICA
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-3000
------------------------
NOTICE OF THE
2001 ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 2001
---------------------
The Annual Meeting of Shareholders of Packaging Corporation of America will
be held at the Hyatt Deerfield located at 1750 Lake Cook Road, Deerfield,
Illinois 60015, on Tuesday, May 15, 2001, beginning at 10:00 a.m., local time.
The purpose of the meeting is to:
- Elect directors for a term to expire at the 2002 Annual Meeting of
Shareholders;
- Ratify appointment of Ernst & Young LLP as our independent accountants;
and
- Consider any other matters that properly come before the meeting.
Only shareholders of record at the close of business on March 16, 2001 are
entitled to receive notice of and to vote at the meeting or any postponement or
adjournment thereof. We have enclosed a copy of our summary Annual Report to
Shareholders, our Annual Report on Form 10-K, a proxy solicited by our Board of
Directors and our Proxy Statement.
YOUR VOTE IS IMPORTANT. WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, YOU ARE
URGED TO VOTE YOUR SHARES BY SIGNING, DATING AND MAILING THE ENCLOSED PROXY CARD
IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED FROM WITHIN THE
UNITED STATES. VOTING INSTRUCTIONS ARE CONTAINED ON THE PROXY CARD AND THE
ATTACHED PROXY STATEMENT. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON,
YOU MAY DO SO.
By Order of the Board of Directors,
/s/ Richard B. West
Richard B. West
CHIEF FINANCIAL OFFICER, VICE
PRESIDENT
AND CORPORATE SECRETARY
April 9, 2001
TABLE OF CONTENTS
ABOUT THE MEETING........................................... 1
What is the purpose of the annual meeting?................ 1
What are the voting recommendations of the Board of
Directors?.............................................. 1
Who is entitled to vote at the meeting?................... 1
Who can attend the meeting?............................... 2
What constitutes a quorum?................................ 2
How do I vote?............................................ 2
What if I vote and then change my mind?................... 2
What vote is required to approve each item?............... 2
How are we soliciting this proxy?......................... 3
BOARD OF DIRECTORS.......................................... 4
Compensation Committee.................................... 6
Audit Committee........................................... 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS...... 8
EXECUTIVE COMPENSATION...................................... 9
Compensation of Executive Officers........................ 9
Employment, Contracts and Termination of Employment and
Change-in-Control Arrangements.......................... 12
Management Equity Agreements.............................. 13
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions................. 13
PERFORMANCE GRAPH........................................... 15
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF OUR PRINCIPAL
SHAREHOLDERS, DIRECTORS AND MANAGEMENT.................... 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 17
CERTAIN TRANSACTIONS AND RELATIONSHIPS...................... 18
SHAREHOLDER PROPOSALS AND NOMINATIONS....................... 19
OTHER MATTERS............................................... 20
[LOGO]
PACKAGING CORPORATION OF AMERICA
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-3000
------------------------
PROXY STATEMENT
------------------------
This proxy statement contains information related to our 2001 Annual Meeting
of Shareholders to be held on May 15, 2001, at 10:00 a.m., local time, at the
Hyatt Deerfield located at 1750 Lake Cook Road, Deerfield, Illinois 60015, or at
such other time and place to which the annual meeting may be adjourned or
postponed. THE ENCLOSED PROXY IS SOLICITED BY OUR BOARD OF DIRECTORS. The proxy
materials relating to the annual meeting are first being mailed on or about
April 9, 2001 to shareholders entitled to vote at the meeting.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, shareholders will act upon the matters outlined in
the accompanying notice of meeting, including the following:
- to elect the directors for a term to expire at the 2002 Annual Meeting of
Shareholders; and
- to ratify the appointment of Ernst & Young LLP as our independent
accountants.
In addition, our management will report on the performance of PCA during
fiscal 2000, and consider any other matters that properly come before the
meeting.
WHAT ARE THE VOTING RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
The Board recommends that you vote your shares:
- FOR each of the directors (see page 4).
- FOR ratification of the appointment of Ernst & Young LLP as PCA's
independent accountants (see page 8).
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only shareholders of record at the close of business on the record date,
March 16, 2001, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Except as otherwise required by law,
holders of our common stock are entitled to one vote per share on each matter to
be voted upon at this annual meeting. A simple majority of the total shares
outstanding is required to elect directors and to ratify or approve other items
being voted on at this time.
As of the record date, we had 106,534,892 shares of our common stock
outstanding (after deducting an aggregate of 27,470 shares held in treasury).
1
WHO CAN ATTEND THE MEETING?
All shareholders as of the record date, or their duly appointed proxies, may
attend the meeting upon presentation of proper identification. Registration and
seating will begin at 9:15 a.m. Cameras, recording devices and other electronic
devices will not be permitted at the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of your proxy card or
a brokerage statement reflecting your stock ownership as of the record date and
check in at the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of our common stock on the record date will constitute a quorum for our
meeting. Proxies received but marked as abstentions and broker non-votes will be
included in the calculation of the number of shares considered to be present at
the meeting.
HOW DO I VOTE?
You can vote on matters to come before the meeting in two ways:
- By completing, dating and signing the enclosed proxy card and returning it
in the enclosed postage-paid envelope.
- By written ballot at the meeting.
Your shares will be voted as you indicate. If you return the proxy card but
you do not indicate your voting preferences, the individuals named on the proxy
card will vote your shares FOR each of the directors and the ratification of the
appointment of Ernst & Young LLP. We are not aware of any other matters to be
presented at the meeting; however, the individuals named in the proxy card will
vote your shares as recommended by the Board, or if no recommendation is given,
in their own discretion, with respect to any other matter that properly comes
before the meeting.
WHAT IF I VOTE AND THEN CHANGE MY MIND?
You may revoke your proxy at any time before it is exercised by:
- filing with the Secretary of PCA a notice of revocation;
- sending in another duly executed proxy bearing a later date; or
- attending the meeting and casting your vote in person.
Your last vote will be the vote that is counted.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The Board of Directors will be elected by a
plurality vote, meaning that the seven nominees who receive the most votes will
be elected to the Board of Directors. A properly executed proxy marked "WITHHOLD
AUTHORITY" with respect to the election of one or more directors will not be
voted with respect to the director or directors indicated, although it will be
counted for purposes of determining whether there is a quorum. The withholding
of authority by a shareholder, including "broker non-votes" (DISCUSSED BELOW),
will not be counted in computing a plurality and thus will have no effect on the
results of the election of such nominees.
OTHER PROPOSALS. For each other proposal, the affirmative vote of the
holders of a majority of our common stock represented in person or by proxy and
entitled to vote at the meeting will be required for approval. A properly
executed proxy marked "ABSTAIN" with respect to any such
2
proposal will not be voted, although it will be counted for purposes of
determining whether there is a quorum. Accordingly, an abstention will have the
effect of a vote against the proposal.
EFFECT OF BROKER NON-VOTES. If you do not provide your broker or other
nominee with instructions on how to vote your "street name" shares, your broker
or nominee may not be permitted to vote them. You should therefore be sure to
provide your broker or nominee with instructions on how to vote your shares.
If you do not give voting instructions to your broker or nominee, you will,
in effect, BE VOTING AGAINST the appointment of Ernst & Young LLP, unless you
appear in person at the annual meeting and vote in favor of these proposals. As
discussed above, a "broker non-vote" will have no effect on the outcome of the
election of directors.
HOW ARE WE SOLICITING THIS PROXY?
We are soliciting this proxy on behalf of our Board of Directors by mail and
will pay all expenses associated with this solicitation. Some of the officers
and other employees of PCA also may, without compensation other than their
regular compensation, solicit proxies by further mailing or personal
conversations, or by telephone, facsimile or other electronic means. We will
also, upon request, reimburse brokers and other persons holding stock in their
names, or in the names of nominees, for their reasonable out-of-pocket expenses
for forwarding proxy materials to the beneficial owners of our common stock and
to obtain proxies.
3
BOARD OF DIRECTORS
THIS SECTION GIVES BIOGRAPHICAL INFORMATION ABOUT OUR DIRECTORS AND
DESCRIBES THEIR MEMBERSHIP ON BOARD COMMITTEES, THEIR ATTENDANCE AT MEETINGS AND
THEIR COMPENSATION. THIS SECTION ALSO SETS FORTH THE FIRST PROPOSAL ON THE
AGENDA FOR THE ANNUAL MEETING.
WHAT IS THE MAKEUP OF THE BOARD OF DIRECTORS?
Our Second Amended and Restated By-Laws provide that the number of directors
shall be set by the Board of Directors. The number of directors is currently
seven. The directors serve until the following annual meeting of the
shareholders. The shareholders elect all of the members of the Board of
Directors each year.
ELECTION OF DIRECTORS (ITEM NO. 1 ON PROXY CARD)
FOR TERM EXPIRING AT 2002 ANNUAL MEETING
The following seven nominees, each of whom currently serves as a director of
PCA, are proposed to be elected at this annual meeting to serve for an annual
term that will expire at the 2002 Annual Meeting of Shareholders and until their
successors are elected and qualified.
The persons named as proxy voters in the accompanying proxy card, or their
substitutes, will vote for these nominees for directors, each of whom has been
designated as such by our current Board of Directors. If, for any reason not
presently known, any of the nominees is not available for election, another
person or other persons who may be nominated by the Board of Directors will be
voted for at the discretion of the proxy voters, unless the Board reduces the
number of directors accordingly. Provided a quorum is present in person or by
proxy, directors will be elected by a vote of a plurality of the shares voted.
YOU MAY VOTE FOR OR WITHHOLD YOUR VOTE FROM THE DIRECTOR NOMINEES. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE NOMINEES LISTED BELOW.
Brief statements setting forth the age at March 20, 2001, the principal
occupation, employment during the past five years, the year in which first
elected a director, and other information concerning each nominee appears below.
Nominees standing for election are:
PAUL T. STECKO is 56 years old and has served as Chief Executive Officer of PCA
since January 1999 and as Chairman of PCA since March 1999. From November 1998
to April 1999, Mr. Stecko served as President and Chief Operating Officer of
Tenneco Inc. From January 1997 to that time, Mr. Stecko served as Chief
Operating Officer of Tenneco. From December 1993 through January 1997,
Mr. Stecko served as President and Chief Executive Officer of Tenneco
Packaging Inc. Prior to joining Tenneco Packaging, Mr. Stecko spent 16 years
with International Paper Company. Mr. Stecko is a member of the board of
directors of Pactiv Corporation, Tenneco Automotive Inc., State Farm Mutual
Insurance Company, American Forest and Paper Association and Cives Corporation.
HENRY F. FRIGON is 66 years old and has served as a director of PCA since
February 2000. Mr. Frigon served as Chairman, President and CEO of
Carstar, Inc., a provider of collision repair services from June 1998 until his
retirement in February 2001. Since 1994, he has been a private investor and
business consultant. Mr. Frigon served as Executive Vice President--Corporate
Development and Strategy and Chief Financial Officer of Hallmark Cards, Inc.
from 1990 through 1994. He retired as President and Chief Executive Officer of
BATUS, Inc. in March 1990 after serving with the company for over 10 years.
Mr. Frigon is a member of the board of directors of H&R Block, Inc., Buckeye
Technologies, Inc., Dimon, Inc., Sypress Solutions, Inc. and Tuesday
Morning Inc.
4
LOUIS A. HOLLAND is 59 years old and has served as a director of PCA since
March 2001. In 1991, Mr. Holland founded Holland Capital Management, and has
served as Managing Partner and Chief Investment Officer of Holland Capital
Management since that date. Mr. Holland is also President and Chief Executive
Officer of HCM Investment Inc. Mr. Holland is frequently a guest on several
media series including "Wall Street Week with Louis Ruykeyser," "The Financial
News Network," "CNN's Moneyline" and others. Mr. Holland is a member of the
board of directors of the National Association of Securities Professionals,
Northwestern Memorial Hospital, and a number of charitable organizations.
JUSTIN S. HUSCHER is 47 years old and has served as a director of PCA since
March 1999 and served as Assistant Secretary of PCA from April 1999 through
January 2000. Mr. Huscher has been employed principally by Madison Dearborn
Partners, Inc. from 1993 and currently serves as a Managing Director. From 1990
until 1993, Mr. Huscher served as Senior Investment Manager of First Chicago
Venture Capital. Mr. Huscher is a member of the board of directors of Bay State
Paper Holding Company.
SAMUEL M. MENCOFF is 44 years old and has served as a director of PCA since
January 1999 and served as Vice President of PCA from January 1999 through
January 2000. Mr. Mencoff has been employed principally by Madison Dearborn
Partners, Inc. since 1993 and currently serves as a Managing Director. From 1987
until 1993, Mr. Mencoff served as Vice President of First Chicago Venture
Capital. Mr. Mencoff is a member of the board of directors of Bay State Paper
Holding Company, Buckeye Technologies, Inc. and Riverwood Holding, Inc.
THOMAS S. SOULELES is 32 years old and has served as a director of PCA since
March 1999 and served as Assistant Secretary of PCA from April 1999 through
January 2000. From January 1999 to April 1999, Mr. Souleles served as a Vice
President and Secretary of PCA. Mr. Souleles has been employed principally by
Madison Dearborn Partners, Inc. since 1995 and currently serves as a Managing
Director. Mr. Souleles is a member of the board of directors of Bay State Paper
Holding Company.
RAYFORD K. WILLIAMSON is 75 years old and has served as a director of PCA since
February 2000. Prior to his retirement in 1998, Mr. Williamson served as Senior
Vice President of B E & K, Inc., a construction and engineering consulting firm,
from 1995 to 1998. Prior to that time, Mr. Williamson was President of B E & K
Engineering Company from 1989 to 1995 and Vice President of B E & K Engineering
Company from 1985 to 1989. From 1951 to 1985, Mr. Williamson was employed by
International Paper. Mr. Williamson currently serves as Director Emeritus of B
E & K, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE DIRECTOR NOMINEES.
HOW ARE DIRECTORS COMPENSATED?
PCA does not currently compensate inside directors for serving as a director
or on committees of the Board of Directors or pay inside directors any fees for
attendance at meetings of the Board. Inside directors are those who also serve
as members of management or who are affiliated with PCA's largest shareholder.
PCA compensates outside directors $1,000 per regular meeting attended of the
Board of Directors and $1,000 per meeting attended of any committee of the Board
of Directors. All directors are reimbursed for reasonable out-of-pocket expenses
incurred in connection with their attendance at Board and committee meetings.
Each outside Director also receives an annual grant of options to purchase
7,000 shares of PCA's common stock as additional incentive compensation for
service on the Board of Directors. These options are granted at 100% of the fair
market value on the date of such grant, and vest immediately.
5
HOW OFTEN DID THE BOARD MEET DURING FISCAL 2000?
The Board of Directors met five times during fiscal 2000. Each member of the
Board attended more than 75% of the aggregate of the total number of meetings of
the Board and the committees on which he was a member during the portion of the
fiscal year that he served as a director or committee member.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board of Directors has standing Compensation and Audit Committees, each
consisting of non-management directors. We do not maintain a standing nominating
committee or other committee performing similar functions. The function of
nominating directors is carried out by the entire Board of Directors. Our
By-Laws, however, provide a procedure for you to recommend candidates for
director at an annual meeting. For more information, see page 19 under
"Shareholder Proposals and Nominations."
NAME COMPENSATION COMMITTEE AUDIT COMMITTEE
- ---- ---------------------- ---------------
Henry F. Frigon.................................. X
Louis A. Holland................................. X
Samuel M. Mencoff................................ X
Thomas S. Souleles............................... X
Rayford K. Williamson............................ X X
COMPENSATION COMMITTEE
The Compensation Committee includes Samuel M. Mencoff, chairman, Thomas S.
Souleles and Rayford K. Williamson. The Committee met three times and conducted
all other business by unanimous written consent during the last fiscal year. The
purpose of the Committee is to establish and execute compensation policies and
programs for PCA's executives and employees. For example, the Compensation
Committee recommends the compensation arrangements for senior management. It
also determines the allocation of amounts to be paid under PCA's incentive
compensation plan and options to be granted under its stock option plan.
AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other PCA filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent we specifically incorporate this Report.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is governed by a written
charter approved by the Board of Directors. A copy of this charter is included
in APPENDIX A. The Audit Committee, composed of independent directors of PCA,
has furnished the following report on the functions performed by the Committee
and its membership:
The Audit Committee oversees PCA's financial reporting process on behalf of
the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling the Committee's oversight responsibilities, Messrs.
Frigon and Williamson, the only members of the Audit Committee prior to
March 20, 2001, reviewed the audited financial statements in the Annual Report
on Form 10-K with management including a discussion of the quality, not just the
acceptability, of the accounting
6
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
Messrs. Frigon and Williamson also reviewed with the independent
accountants, who are responsible for expressing an opinion on the conformity of
those audited financial statements with generally accepted accounting
principles, their judgment as to the quality, not just the acceptability, of
PCA's accounting principles and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards. In
addition, Messrs. Frigon and Williamson discussed with the independent
accountants their auditors' independence from management and PCA including the
matters in the written disclosures required by the Independence Standards Board
and considered the compatibility of nonaudit services with their auditors'
independence.
In addition, Messrs. Frigon and Williamson discussed with PCA's internal
auditors and independent accountants the overall scope and plans for their
respective audits. The Committee meets with the internal auditors and
independent accountants, with and without management present, to discuss the
results of their examinations, their evaluations of PCA's internal controls, and
the overall quality of PCA's financial reporting. The Committee held four
meetings during fiscal year 2000.
In reliance on the reviews and discussions referred to above, Messrs. Frigon
and Williamson recommended to the Board of Directors (and the Board approved)
that the audited financial statements be included in the Annual Report on
Form 10-K for the year ended December 31, 2000 for filing with the Securities
and Exchange Commission. Messrs. Frigon and Williamson and the Board have also
recommended, subject to shareholder approval, the selection of PCA's independent
accountants.
AUDIT COMMITTEE MEMBERS
Henry F. Frigon, Chairman
Rayford K. Williamson
Louis A. Holland (effective March 20,
2001)
7
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(ITEM NO. 2 ON PROXY CARD)
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Ernst & Young LLP as PCA's independent accountants for the fiscal year
ending December 31, 2001, and has further directed that management submit the
selection of independent accountants for ratification by the shareholders at the
annual meeting. Ernst & Young LLP has audited PCA's financial statements since
PCA's inception in 1999. Representatives of Ernst & Young LLP are expected to be
present at the annual meeting. They will have the opportunity to make a
statement if they wish to do so and will be available to respond to appropriate
questions.
FEES TO INDEPENDENT ACCOUNTANTS
AUDIT FEES. The aggregate fees paid to Ernst & Young LLP for professional
services rendered for the audit of our annual financial statements for the
fiscal year ended December 31, 2000 and for the reviews of the financial
statements included in our Quarterly Reports on Form 10-Q for the fiscal year
were $264,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. None.
ALL OTHER FEES. The aggregate fees paid to Ernst & Young LLP for services
rendered to PCA, other than the Audit Fees, for the fiscal year ended
December 31, 2000 were $817,000, all of which were audit related. These audit
related services generally included fees for accounting consultations, internal
audit services and Securities and Exchange Commission registrations statements.
The Audit Committee has considered whether the services described under "All
Other Fees" above are compatible with maintaining Ernst & Young LLP's
independence and has determined that such services have not adversely affected
Ernst & Young LLP's independence.
SHAREHOLDER RATIFICATION
Shareholder ratification of the appointment of Ernst & Young LLP as PCA's
independent accountants is not required by our By-Laws or otherwise. However,
the Board is submitting the appointment of Ernst & Young LLP to the shareholders
for ratification as a matter of good corporate practice. If the shareholders
fail to ratify the appointment, the Audit Committee and the Board of Directors
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board of Directors in their discretion may
direct the appointment of different independent accountants at any time during
the year if they determine that such an appointment would be in the best
interests of PCA and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS PCA'S INDEPENDENT ACCOUNTANTS FOR FISCAL
YEAR 2001.
8
EXECUTIVE COMPENSATION
THIS SECTION CONTAINS CHARTS AND OTHER INFORMATION THAT SHOW THE AMOUNT OF
COMPENSATION EARNED BY OUR CHIEF EXECUTIVE OFFICER AND BY OUR FOUR OTHER MOST
HIGHLY COMPENSATED EXECUTIVE OFFICERS. IT ALSO CONTAINS THE REPORT OF THE
COMPENSATION COMMITTEE EXPLAINING THE COMPENSATION PHILOSOPHY FOR OUR MOST
HIGHLY PAID OFFICERS.
COMPENSATION OF EXECUTIVE OFFICERS
None of the executive officers of PCA received compensation from PCA prior
to April 12, 1999, the date on which PCA became a stand-alone company. Before
that date, PCA's chief executive officer and its four other most highly
compensated executive officers, Mr. Stecko, Mr. Sweeney, Mr. Kowlzan, Mr. West,
and Ms. Davey, were employed by, and received compensation from, Tenneco Inc. or
its affiliates.
SUMMARY COMPENSATION TABLE. The following table sets forth information
relating to the compensation earned by our Chief Executive Officer and the four
other most highly compensated executive officers (collectively, the "Named
Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
NAME AND OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(3) GRANTED (#) COMPENSATION
------------------ -------- -------- -------- --------------- ------------ ------------
Paul T. Stecko ........... 2000 $621,000 $770,000 $78,402 125,000 $343,423(4)
Chairman and Chief 1999 434,545(1) 750,000(2) 57,684 1,386,000 1,008,289(5)
Executive Officer
William J. Sweeney ....... 2000 369,600 315,000 30,000 50,000 51,101(4)
Executive Vice 1999 255,943(1) 250,000(2) 587,400 39,914(5)
President--
Corrugated Products
Mark W. Kowlzan .......... 2000 202,605 225,000 20,000 30,000 64,516(4)
Vice President-- 1999 140,941(1) 175,000(2) 350,900 1,379(5)
Containerboard
Richard B. West .......... 2000 205,944 175,000 20,000 25,000 87,027(4)
Chief Financial Officer, 1999 143,142(1) 150,000(2) -- 215,600 54,055(5)
Vice
President and
Corporate Secretary
Andrea L. Davey .......... 2000 156,528 100,000 12,000 18,000 15,050(4)
Vice President-- 1999 108,859(1) 85,000(2) -- 140,580 9,795(5)
Human Resources
- ------------------------
(1) Represents salary paid by PCA from April 12, 1999, the date of the closing
of the transactions by which PCA acquired its containerboard and corrugated
products business from Pactiv Corporation and became a stand-alone company,
through December 31, 1999.
(2) Represents annual bonuses earned during the period from January 1, 1999 to
December 31, 1999 that were paid in January 2000.
(3) For the year 2000, represents perquisite allowances of $60,000, $30,000,
$20,000, $20,000 and $12,000 for Mr. Stecko, Mr. Sweeney, Mr. Kowlzan,
Mr. West and Ms. Davey respectively, and for Mr. Stecko an additional amount
paid of $18,402 for legal, tax planning and financial assistance. For the
year 1999 represents amounts paid by PCA on behalf of Mr. Stecko for legal,
tax and financial planning assistance in connection with the April 1999
transaction.
9
(4) Includes amounts paid for the following items in 2000:
(a) The taxable dollar values paid by PCA for company provided benefits
such as insurance premiums under the group life insurance plan of
$11,499, $10,037, $2,400, $3,953 and $1,909 for Mr. Stecko,
Mr. Sweeney, Mr. Kowlzan, Mr. West and Ms. Davey, respectively.
(b) Partial reimbursement of interest payments made in connection with
the 1999 management equity agreements of $49,218, $20,983, $10,500,
$7,399 and $5,028 for Mr. Stecko, Mr. Sweeney, Mr. Kowlzan, Mr. West
and Ms. Davey, respectively.
(c) Special one-time bonuses paid in recognition of their efforts in the
successful completion of the woodlands sales of $250,000 and $65,000
for Mr. Stecko and Mr. West, respectively.
(d) The amounts contributed pursuant to PCA's 401k plans for the accounts
of Mr. Stecko, Mr. Sweeney, Mr. West and Ms. Davey of $32,706,
$20,081, $10,675 and $8,113, respectively.
(e) Includes $51,616 in relocation expenses paid to Mr. Kowlzan.
(5) Includes amounts paid for the following items in 1999:
(a) The taxable dollar values paid by PCA for company provided benefits
such as insurance premiums under the group life insurance plan of
$7,016, $4,623, $1,379, $1,013 and $947 for Mr. Stecko, Mr. Sweeney,
Mr. Kowlzan, Mr. West and Ms. Davey, respectively.
(b) Special one-time signing bonus of $1,000,000 paid to Mr. Stecko, and
in the case of Mr. West a special one-time bonus of $50,000 in
recognition of efforts related to the transactions.
(c) The amounts contributed pursuant to the Company's 401k plans for the
accounts of Mr. Stecko, Mr. Sweeney, Mr. West and Ms. Davey of
$1,273, $35,291, $3,042, and $8,848, respectively.
OPTION GRANTS TABLE. The following table shows aggregate grants of options
during fiscal year 2000 to the Named Executive Officers and the potential
realizable value of unexercised options at assumed annual rates of stock price
appreciation.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENTAGE OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ---------- ------------------- --------- ---------- --------- ---------
Paul T. Stecko............ 125,000 11.4% $12.00 5/12/10 $357,684 $906,441
William J. Sweeney........ 50,000 4.5 12.00 5/12/10 143,074 362,576
Mark W. Kowlzan........... 30,000 2.7 12.00 5/12/10 85,844 217,546
Richard B. West........... 25,000 2.3 12.00 5/12/10 71,537 181,288
Andrea L. Davey........... 18,000 1.6 12.00 5/12/10 51,506 130,528
- ------------------------
(1) These options are not currently exercisable and are subject to a four year
vesting schedule.
(2) Amounts reflect certain assumed rates of appreciation set forth in the
executive compensation disclosure rules of the SEC. Actual gains, if any, on
stock option exercises depend on future performance of PCA's common stock
and overall stock market conditions. No assurances can be made that the
amounts reflected in these columns will be achieved.
10
OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table shows
aggregate exercises of options during fiscal year 2000 by the Named Executive
Officers and the aggregate value of unexercised options held by each Named
Executive Officer as of December 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR END(1) AT YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Paul T. Stecko............ 0 $0 1,386,000 125,000 $16,042,950 $515,625
William J. Sweeney........ 0 0 587,400 50,000 6,799,155 206,250
Mark W. Kowlzan........... 0 0 350,900 30,000 4,061,668 123,750
Richard B. West........... 0 0 215,600 25,000 2,495,570 103,125
Andrea L. Davey........... 0 0 140,580 18,000 1,627,214 74,250
- ------------------------
(1) Based on the fair market value of PCA's common stock on December 29, 2000,
which was $16.125 per share.
PENSION PLAN TABLE. Pursuant to a human resources agreement between PCA and
its former parent company, Pactiv Corporation, PCA remains a participating
employer in a tax-qualified, defined benefit pension plan sponsored by Pactiv
(the "Pactiv Retirement Plan"). See the description of this agreement under
"Certain Transactions and Relationships--Transition Agreements." Employees hired
prior to the consummation of PCA's separation from Pactiv on April 12, 1999 may
remain active plan participants in the Pactiv Retirement Plan through April 12,
2003, including the Named Executive Officers. Except for Mr. Stecko, the Named
Executive Officers are also participants in a Supplemental Executive Retirement
Plan sponsored by Pactiv. Mr. Stecko is covered under a separate Supplemental
Executive Retirement Plan that is described in the section entitled "Executive
Compensation--Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
11
The following table shows the aggregate estimated combined annual benefits
provided under the provisions of the Pactiv Retirement Plan and the Pactiv
Supplemental Executive Retirement Plan, payable as a life annuity, upon normal
retirement, to persons in specified salary and years-of-service classifications.
PENSION PLAN TABLE
PACTIV RETIREMENT--PLANS ESTIMATED TOTAL ANNUAL RETIREMENT BENEFITS*
(EXPRESSED AS AN AGE 65 SINGLE LIFE ANNUITY)
YEARS OF SERVICE
ANNUAL --------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ -------- -------- -------- -------- -------- -------- --------
$ 250,000 ................ $ 19,643 $ 39,286 $ 58,929 $ 78,571 $ 98,214 $117,857 $137,500
$ 300,000 ................ $ 23,571 $ 47,143 $ 70,714 $ 94,286 $117,857 $141,429 $165,000
$ 350,000 ................ $ 27,500 $ 55,000 $ 82,500 $110,000 $137,500 $165,000 $192,500
$ 400,000 ................ $ 31,429 $ 62,857 $ 94,286 $125,714 $157,143 $188,571 $220,000
$ 450,000 ................ $ 35,357 $ 70,714 $106,071 $141,429 $176,786 $212,143 $247,500
$ 500,000 ................ $ 39,286 $ 78,571 $117,857 $157,143 $196,429 $235,714 $275,000
$ 550,000 ................ $ 43,214 $ 86,429 $129,643 $172,857 $216,071 $259,286 $302,500
$ 600,000 ................ $ 47,143 $ 94,286 $141,429 $188,571 $235,714 $282,857 $330,000
$ 650,000 ................ $ 51,071 $102,143 $153,214 $204,286 $255,357 $306,429 $357,500
$ 700,000 ................ $ 55,000 $110,000 $165,000 $220,000 $275,000 $330,000 $385,000
$ 750,000 ................ $ 58,929 $117,857 $176,786 $235,714 $294,643 $353,571 $412,500
$ 800,000 ................ $ 62,857 $125,714 $188,571 $251,429 $314,286 $377,143 $440,000
$ 850,000 ................ $ 66,786 $133,571 $200,357 $267,143 $333,929 $400,714 $467,500
$ 900,000 ................ $ 70,714 $141,429 $212,143 $282,857 $353,571 $424,286 $495,000
$ 950,000 ................ $ 74,643 $149,286 $223,929 $298,571 $373,214 $447,857 $522,500
$1,000,000 ................ $ 78,571 $157,143 $235,714 $314,286 $392,857 $471,429 $550,000
$1,050,000 ................ $ 82,500 $165,000 $247,500 $330,000 $412,500 $495,000 $577,500
$1,100,000 ................ $ 86,429 $172,857 $259,286 $345,714 $432,143 $518,571 $605,000
$1,150,000 ................ $ 90,357 $180,714 $271,071 $361,429 $451,786 $542,143 $632,500
$1,200,000 ................ $ 94,286 $188,571 $282,857 $377,143 $471,429 $565,714 $660,000
$1,250,000 ................ $ 98,214 $196,429 $294,643 $392,857 $491,071 $589,286 $687,500
$1,300,000 ................ $102,143 $204,286 $306,429 $408,571 $510,714 $612,857 $715,000
$1,350,000 ................ $106,071 $212,143 $318,214 $424,286 $530,357 $636,429 $742,500
$1,400,000 ................ $110,000 $220,000 $330,000 $440,000 $550,000 $660,000 $770,000
- ------------------------
* This table includes estimated benefit amounts from the Pactiv Retirement Plan
and the Pactiv Supplemental Executive Retirement Plan of which PCA is a
participating employer.
The benefits shown above are based on years of credited participation and
the employee's final average compensation, which is comprised of salary and
bonus earned during the final 60 full months of employment while covered as a
plan participant. These benefits are not subject to any deduction for Social
Security or other offset amounts. The years of credited participation for
Mr. Stecko, Mr. Sweeney, Mr. Kowlzan, Mr. West and Ms. Davey are 6 years,
9 years and 5 months, 3 years and 5 months, 4 years and 3 months, and 5 years
and 1 month, respectively. Refer to the Summary Compensation Table for salary
and bonus information for these individuals.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Under the terms of letter agreements entered into with Mr. Stecko on
January 25, 1999 and May 19, 1999, PCA pays Mr. Stecko a base salary of $600,000
per annum, subject to increases
12
approved by the Board, and has agreed to pay Mr. Stecko an annual bonus of not
less than $500,000 with respect to each of the fiscal years 1999, 2000 and 2001,
and an annual perquisite allowance of not less than $60,000 payable in cash. In
addition, PCA paid Mr. Stecko a signing bonus payment of $1 million, the net
proceeds of which, under the terms of the letter agreements, were invested in
common stock of PCA. If PCA terminates Mr. Stecko without cause, he is entitled
to receive an amount equal to three times the sum of his base salary plus the
amount of the highest annual bonus paid to him during the previous three year
period.
Under the terms of a letter of agreement dated May 19, 1999, PCA established
a Supplemental Executive Retirement Plan under which we will provide Mr. Stecko
with a supplemental pension benefit calculated on the basis of the following
formula: (annual salary + bonus) X (years of service) X (.0167), where "years of
service" equals years of service with PCA + five years. The benefit is payable
in a lump sum at Mr. Stecko's election, with the lump sum determined using the
following factors: the interest rate used will be the annual rate of interest of
30-year Treasury Securities as specified by the IRS for the second calendar
month preceding the first day of the calendar year during which the annuity
starting date occurs and the applicable mortality table described in Revenue
Ruling 95-6, 1995-1 C.B. 80. These benefits are payable upon Mr. Stecko's
separation from service but, with respect to benefit commencement prior to age
62, there will be a 4% per year reduction for early payment.
Under the terms of a memorandum from PCA to Mr. Sweeney, dated April 16,
1999, PCA agreed to pay Mr. Sweeney a bonus in the amount of $500,000 if either
PCA terminates Mr. Sweeney before April 12, 2002 for any reason other than for
cause or he is still employed by PCA on April 12, 2002. If Mr. Sweeney dies
before April 12, 2002, the bonus will be paid to his beneficiaries. Mr. Sweeney
agreed to use the after-tax proceeds of this bonus to pay off the outstanding
balance, if any, of the loan he received from Morgan Guaranty Trust Company of
New York to purchase equity of PCA in June 1999.
MANAGEMENT EQUITY AGREEMENTS
PCA entered into management equity agreements in June 1999 with 125 of its
management-level employees, including the Named Executive Officers. Under these
agreements, PCA sold 3,132,800 shares of common stock to 113 of these employees
at approximately $4.55 per share, the same price per share at which PCA Holdings
purchased equity in the April 12, 1999 transactions. PCA guaranteed bank
financing in the amount of $5,200,000 in the aggregate to enable some of these
members of PCA's management to purchase equity under their respective management
equity agreements. The amount of bank financing guaranteed by PCA with respect
to any employee did not exceed 50% of the purchase price paid by the employee
under his or her management equity agreement.
The management equity agreements also provide for the grant of options to
purchase up to an aggregate of 6,569,200 shares of PCA's common stock at the
same price per share at which PCA Holdings purchased common stock in the
April 12, 1999 transactions. These options became exercisable upon completion of
PCA's initial public offering. The option shares are subject to contractual
restrictions on transfer for a period of up to 18 months following completion of
the offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The following Report of the Compensation Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other PCA filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent we specifically incorporate this
Report.
The Compensation Committee of the Board of Directors is comprised of
directors who are not employees. Neither Mr. Mencoff nor Mr. Souleles was
compensated when he served as an officer of
13
PCA. The Compensation Committee has furnished the following report on executive
compensation for fiscal year 2000:
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
BACKGROUND. This report on executive compensation is furnished by the
Compensation Committee of the Board of Directors, which is composed of three
non-employee directors, and which is responsible for establishing and overseeing
the Company's executive compensation programs.
The Committee determines compensation for executive officers using the same
guiding principles that are in place for all PCA associates, a clear focus on
paying for performance, and a strong realization of the competitive market place
for talented individuals.
In determining the total compensation package for the executives, the
Committee relies upon national and local salary surveys giving consideration to
a peer group comprised of Forest and Paper Products companies. The total
compensation package for the executives consists of a base salary, an annual
incentive, and a long-term incentive in the form of stock option grants.
PCA executives participate in an annual incentive compensation plan designed
to reinforce a results oriented management culture. The plan contains financial
and non-financial measures. Financial performance targets are established using
the Annual Operating Plan. The award pool established at plan is equivalent to
the sum of the individual target awards. Quantitative factors such as cash
management/debt reduction, environmental performance, and safety and health
performance can be used to adjust the award pool plus or minus 25% at the
discretion of the Board. Qualitative factors such as customer satisfaction and
change leadership can be used to adjust the award pool plus or minus 10% at the
discretion of the Board. Lastly, at the discretion of the Board, the award pool
can be adjusted based on PCA's growth of Total Return to Shareholders as
measured against peer companies.
The Company's 1999 Long Term Equity Incentive Compensation Plan provides,
among other things, that stock options and restricted stock awards may be
granted to the CEO, executive officers, and other key associates who contribute
to the long-term success of the company. Targeted long-term incentive
compensation for 2000 was delivered exclusively in the form of non-qualified
stock options.
The Committee has considered the provisions of Section 162(m) of the
Internal Revenue Code which generally limits the annual tax deductibility of
compensation paid to each named executive to $1 million. To the extent possible,
the Committee intends to preserve the federal income tax deductibility, but may
choose to provide compensation that may not be deductible if it believes that
such payments are in the best overall interests of the Company and its
shareowners.
CEO COMPENSATION. The chief executive officer's compensation package is
determined using PCA's guiding principles as described above. Mr. Stecko's year
2000 base salary of $621,000 is slightly lower than the median base salaries
paid to individuals in similar positions in similar revenue sized companies.
Mr. Stecko's total cash compensation (base salary plus annual incentive) is
within the range of the 75th percentile of the peer group, which is consistent
with PCA's compensation philosophy of providing annual incentive opportunities
that provide reward potential for exceptional performance.
COMPENSATION COMMITTEE MEMBERS
Samuel M. Mencoff, Chairman
Thomas S. Souleles
Rayford K. Williamson
14
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return on
PCA's common stock from January 28, 2000 (the first day on which PCA's common
stock began trading on the New York Stock Exchange), through December 31, 2000,
with the cumulative total return of: (i) Standard & Poor's 500 Stock Index;
(ii) Standard & Poor's Smallcap 600 Index; (iii) Standard & Poor's Midcap 400
Index; and (iv) Standard & Poor's Paper & Forest Products Index. The stock
performance shown in this graph represents past performance and should not be
considered an indication of future performance of PCA's common stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
1/28/00 3/00 6/00 9/00 12/00
PACKAGING CORPORATION OF AMERICA 100 88 84 92 134
S & P 500 100 102 100 99 91
S & P SMALLCAP 600 100 106 107 110 112
S & P MIDCAP 400 100 113 109 122 118
S & P PAPER & FOREST PRODUCTS 100 82 63 60 82
CUMULATIVE TOTAL RETURN
--------------------------------------------------------
JANUARY 28, MARCH JUNE SEPTEMBER DECEMBER
2000(1) 2000 2000 2000 2000
----------- -------- -------- --------- --------
Packaging Corporation of America............ $ 100.00 $ 87.50 $ 84.38 $ 92.19 $134.38
S&P 500..................................... 100.00 102.29 99.58 98.61 90.89
S&P Smallcap 600............................ 100.00 105.82 106.89 110.41 111.80
S&P Midcap 400.............................. 100.00 112.69 108.97 122.21 117.51
S&P Paper & Forest Products................. 100.00 81.54 62.55 60.33 81.89
- ------------------------
(1) The initial measurement point for the performance graph assumes a $100
investment in PCA's common stock on January 28, 2000 and in each S&P index
on December 31, 1999. In addition, the cumulative total returns assume
reinvestment of any dividends.
15
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF OUR PRINCIPAL
SHAREHOLDERS, DIRECTORS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of PCA's common stock as of February 14, 2001 by (1) each person or
group of affiliated persons who is known by PCA to own beneficially more than 5%
of the common stock, (2) each of PCA's directors, (3) each of PCA's executive
officers and (4) all directors and executive officers of PCA as a group. Except
as otherwise noted, the persons or entities in this table have sole voting and
investment power with respect to all the shares of common stock owned by them.
NAME NUMBER(1) PERCENT
- ---- ---------- -----------------------
PCA Holdings LLC(2) ........................................ 49,426,960 46.5%
c/o Madison Dearborn Partners, LLC
Three First National Plaza
Chicago, Illinois 60602
Wellington Management Company, LLP(3) ...................... 7,794,800 7.3%
75 State Street
Boston, Massachusetts 02109
Vanguard Windsor Funds--Vanguard Windsor Fund(4) ........... 6,706,500 6.3%
P.O. Box 2600, VM #V34
Valley Forge, Pennsylvania 19482
Pactiv Corporation ......................................... 5,795,240 5.4%
1900 West Field Court
Lake Forest, Illinois 60045
Paul T. Stecko(5)........................................... 2,090,000 1.9%
William J. Sweeney(6)....................................... 808,780 *
Mark W. Kowlzan(7).......................................... 513,700 *
Richard B. West(8).......................................... 314,820 *
Andrea L. Davey(9).......................................... 206,580 *
Samuel M. Mencoff(10)....................................... 44,131,010 41.5%
Justin S. Huscher(11)....................................... 44,131,010 41.5%
Thomas S. Souleles(12)...................................... 44,131,010 41.5%
Henry F. Frigon(13)......................................... 11,000 *
Louis A. Holland............................................ -- --
Rayford K. Williamson(14)................................... 7,000 *
All directors and executive officers as a group (11 48,082,890 44.1%
persons)(15)..............................................
- ------------------------
* Denotes ownership of less than one percent.
(1) Includes the number of shares and percentage ownership represented by the
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission. Percentage ownership
is based on 106,405,233 shares of common stock outstanding (after deducting
an aggregate of 27,470 shares held in treasury) as of February 14, 2001.
The number of shares beneficially owned by a person includes shares of
common stock that are subject to options held by that person that are
currently exercisable or exercisable within 60 days of February 14, 2001.
These shares are deemed outstanding for the purpose of computing the
percentage of outstanding shares owned by that person. These shares are not
deemed outstanding, however, for the purposes of computing the percentage
ownership of any other person.
(2) The members of PCA Holdings include Madison Dearborn Capital Partners III,
L.P. ("MDCP III") and two funds affiliated with MDCP III. MDCP III and its
affiliated funds may be deemed to have beneficial ownership of 44,131,010
shares of common stock of PCA held by PCA Holdings. Shares beneficially
owned by MDCP III and its affiliated funds may be deemed to be beneficially
owned by Madison Dearborn Partners III, L.P., the general partner or
manager, as
16
applicable, of each fund ("MDP III"), by Madison Dearborn, the general
partner of MDP III and by a limited partner committee of MDP III.
(3) In a Schedule 13G filed with the Securities and Exchange Commission on
February 13, 2001, Wellington Management Company states that it is an
investment adviser and may therefore be deemed to beneficially own
7,794,800 shares which are held by its clients. Vanguard Windsor Fund is a
client of Wellington Management Company.
(4) In a Schedule 13G filed with the Securities and Exchange Commission on
February 14, 2001, Vanguard Windsor Fund states that it is an investment
company and has sole voting power and shared dispositive power over these
shares.
(5) Mr. Stecko owns 132,000 shares of common stock of PCA and the Paul T.
Stecko 1999 Dynastic Trust owns 572,000 shares of common stock of PCA.
Mr. Stecko may be deemed to have beneficial ownership of the shares of
common stock of PCA owned by the Paul T. Stecko 1999 Dynastic Trust.
Mr. Stecko also has an exercisable option to acquire 1,386,000 shares of
common stock of PCA.
(6) Mr. Sweeney may be deemed to have beneficial ownership of the
221,380 shares of common stock of PCA owned by the William J. Sweeney 1999
Irrevocable Trust. Mr. Sweeney also has an exercisable option to acquire
587,400 shares of common stock of PCA.
(7) Mr. Kowlzan has an exercisable option to acquire 350,900 shares of common
stock of PCA.
(8) Mr. West has an exercisable option to acquire 215,600 shares of common
stock of PCA.
(9) Ms. Davey may be deemed to have beneficial ownership of the 66,000 shares
of common stock of PCA owned by the Andrea Lora Davey Trust dated
February 19, 1994. Ms. Davey also has an exercisable option to acquire
140,580 shares of common stock of PCA.
(10) Mr. Mencoff is a Managing Director of Madison Dearborn and may therefore
be deemed to share beneficial ownership of the shares owned by Madison
Dearborn. Mr. Mencoff expressly disclaims beneficial ownership of the
shares owned by Madison Dearborn.
(11) Mr. Huscher is a Managing Director of Madison Dearborn and may therefore
be deemed to share beneficial ownership of the shares owned by Madison
Dearborn. Mr. Huscher expressly disclaims beneficial ownership of the
shares owned by Madison Dearborn.
(12) Mr. Souleles is a Managing Director of Madison Dearborn and may therefore
be deemed to share beneficial ownership of the shares owned by Madison
Dearborn. Mr. Souleles expressly disclaims beneficial ownership of the
shares owned by Madison Dearborn.
(13) Mr. Frigon has an exercisable option to acquire 7,000 shares of common
stock of PCA.
(14) Mr. Williamson has an exercisable option to acquire 7,000 shares of common
stock of PCA.
(15) Includes 2,694,480 shares issuable upon exercise of currently exercisable
stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of our common stock, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file. Based solely upon a review of the copies of such forms furnished to
us, or written representations that no Forms 5 were required, we believe that
during our preceding fiscal year all Section 16(a) filing requirements
applicable to our officers, directors and greater than 10% beneficial owners
were complied with except for one occasion in which Mr. Stecko purchased 1,000
shares and filed a Form 4 two months later.
17
CERTAIN TRANSACTIONS AND RELATIONSHIPS
WE BELIEVE THAT ALL OF THE TRANSACTIONS SET FORTH BELOW WERE MADE ON AN
ARMS-LENGTH BASIS. ALL FUTURE TRANSACTIONS BETWEEN US AND OUR OFFICERS,
DIRECTORS, PRINCIPAL SHAREHOLDERS AND AFFILIATES WILL BE APPROVED BY A MAJORITY
OF THE BOARD OF DIRECTORS, INCLUDING A MAJORITY OF THE DISINTERESTED DIRECTORS,
AND WILL CONTINUE TO BE ON TERMS NO LESS FAVORABLE TO US THAN COULD BE OBTAINED
FROM UNAFFILIATED THIRD PARTIES.
REGISTRATION RIGHTS AGREEMENT
PCA, PCA Holdings LLC and Pactiv Corporation entered into a registration
rights agreement under which Pactiv, PCA Holdings and their affiliates and
transferees have "demand" registration rights, which entitle them to cause PCA
to register their securities of PCA under the Securities Act. In addition,
Pactiv, PCA Holdings and their affiliates and transferees have "piggyback"
registration rights, which entitle them to cause PCA to include their securities
in a registration in which PCA proposes to register any of its securities under
the Securities Act. Pactiv and its affiliates, on the one hand, and PCA Holdings
and its affiliates, on the other hand, are each entitled to demand:
(1) three "long form" registrations on Form S-1, or a similar long form, in
which PCA will pay the registration expenses, other than underwriting
discounts and commissions,
(2) an unlimited number of "short form" registrations on Form S-2 or S-3, or
a similar short form, in which PCA will pay the registration expenses,
other than underwriting discounts and commissions, and
(3) an unlimited number of "long form" registrations on Form S-1, or a
similar long form, in which the requesting holders will pay the
registration expenses.
PCA Holdings, Pactiv and their affiliates will have equal priority, before
any other holders of PCA's securities, to participate in any registrations of
PCA's securities. Pactiv exercised one of its "demand" registration rights under
this agreement in order to effect the registration of its shares of common stock
for sale in the public offering of PCA's common stock on January 28, 2000.
SERVICES AGREEMENT
PCA entered into a holding company support agreement with PCA Holdings under
which PCA agreed to reimburse PCA Holdings for all fees, costs and expenses, up
to an aggregate amount of $250,000 per year, related to PCA Holdings' investment
in PCA. These expenses include PCA Holdings' general operating expenses,
franchise tax obligations, accounting, legal, corporate reporting and
administrative expenses, and any other expenses incurred by PCA Holdings as a
result of its investment in PCA. PCA paid no amounts in fiscal year 2000 under
this agreement.
PURCHASE SUPPLY AGREEMENTS
PCA entered into supply agreements with Pactiv and Tenneco Automotive Inc.
Under the supply agreements, Pactiv and Tenneco Automotive agreed to purchase a
substantial percentage of their requirements for containerboard and/or
corrugated products from PCA at the prices charged by PCA to Pactiv and Tenneco
Automotive at the closing of the April 12, 1999 transactions and adjusted
periodically for market price changes, in accordance with the agreements. As a
result of these agreements, Pactiv and Tenneco Automotive represent 5.2% and
0.7%, respectively, of our total net sales for 2000.
TRANSITION AGREEMENTS
PCA and Pactiv entered into a facility use agreement which provides for
PCA's use of a designated portion of Pactiv's headquarters located in Lake
Forest, Illinois for a period of up to four years
18
following the closing of the April 12, 1999 transactions. Under the facility use
agreement, PCA is required to pay Pactiv rent plus additional charges for the
provision of building and business services. The rent is calculated based on
PCA's proportionate square footage usage of the property. PCA paid $2.0 million
to Pactiv in rent in fiscal year 2000 under this agreement, and $0.4 million for
provision of building and business services.
PCA also entered into a transition services agreement with Pactiv which
provided for the performance of transitional services by Pactiv and its
affiliates to PCA that PCA required to operate the containerboard and corrugated
products business. Pactiv charged PCA an amount substantially equal to its
actual cost of providing the services, which cost included Pactiv's overhead
expenses, but did not include Tenneco's overhead expenses. The exact charge to
PCA was the lesser of (1) Pactiv's actual cost and (2) 105% of the cost as
forecasted by Pactiv with respect to providing services within the following
categories: payroll, general accounting, tax support, treasury/cash management,
insurance/ risk management, procurement and, human resources and
telecommunication and information services. PCA paid $2.6 million to Pactiv in
fiscal year 2000 under this agreement. The agreement expired in October, 2000.
PCA and Pactiv entered into a human resources agreement which, among other
items, granted PCA employees continued participation in the Pactiv pension and
welfare plans for a period of up to five years following the closing of the
April 12, 1999 transactions for an agreed upon fee. For salaried employees, PCA
will pay Pactiv $4.0 million in the first and second years, $6.0 million in the
third year, $8.0 million in the fourth year, and $10.0 million in the fifth year
following the closing date of the April 12, 1999 transactions. For hourly
employees, PCA paid Pactiv $1.2 million per year through December 31, 2000 and
then $4.5 million per year for two additional years. These amounts can be
adjusted if there are material increases in the pension costs to Pactiv. The
fees paid to Pactiv are expensed ratably throughout the year. PCA intends to
adopt its own compensation and benefit plans with respect to its employees
sometime in the future.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Shareholder proposals for our 2002 Annual Meeting of Shareholders must be
received at our principal executive offices by November 30, 2001, to be
considered for inclusion in our proxy materials relating to our 2002 Annual
Meeting.
Shareholders may nominate directors or bring other business before the
shareholders at the 2002 Annual Meeting of Shareholders by delivering written
notice to our Corporate Secretary setting forth, as to each matter the
shareholder proposes to bring before the 2002 Annual Meeting:
(1) a brief description of the business desired to be brought before the
2002 Annual Meeting;
(2) the name and address, as they appear in our books, of the shareholder
proposing the business;
(3) the number of shares of our common stock which are beneficially owned by
the shareholder; and
(4) any material interest of the shareholder in the business proposed to be
brought before the 2002 Annual Meeting.
Notice of business proposed to be brought before the 2002 Annual Meeting must be
received by our Corporate Secretary no earlier than February 14, 2002 and no
later than March 16, 2002 to be presented at the 2002 Annual Meeting. Please
note that this paragraph relates only to the matters you wish to bring before
your fellow shareholders at the 2002 Annual Meeting. The requirements set forth
in this paragraph are separate from the Securities and Exchange Commission's
requirements set forth in the first paragraph of this section to have your
proposal included in our proxy statement.
19
We reserve the right to reject, rule out of order, or take other appropriate
action with respect to any proposal or nomination that does not comply with
these and other applicable requirements.
OTHER MATTERS
As of the date of this proxy statement, the Board does not intend to present
at the annual meeting any matters other than those described herein and does not
presently know of any matters that will be presented by other parties. If any
other matter requiring a vote of the shareholders should come before the
meeting, it is the intention of the persons named in the proxy to vote with
respect to any such matter in accordance with the recommendation of the Board
or, in the absence of such a recommendation, in accordance with the best
judgment of the proxy holder.
PACKAGING CORPORATION OF AMERICA
/s/ Richard B. West
Richard B. West
CHIEF FINANCIAL OFFICER, VICE
PRESIDENT
AND CORPORATE SECRETARY
April 9, 2001
20
APPENDIX A
PACKAGING CORPORATION OF AMERICA
(PCA)
AUDIT COMMITTEE CHARTER
PCA has established a committee of the board of directors, which will be known
as the audit committee. The audit committee shall meet the requirements of the
New York Stock Exchange. Audit committee members shall be appointed by the
Board. Only independent directors will serve on the audit committee. The
independence of the directors includes ensuring that the director is free of any
relationship that could influence his or her judgment as a committee member. The
independent director is not an officer or employee of the company and is not
associated with a major vendor or customer of the company. When PCA audit
committee members have doubt about their independence, as when a member of the
committee has a short term consulting contract with a major customer or vendor,
the member will recuse himself from any decisions that might be influenced by
that relationship. All members of the committee shall have a basic understanding
of accounting and finance and be able to read and understand financial
statements, and a least one member of the committee shall have accounting or
related financial management experience.
The primary function of PCA's audit committee is to assist the board in
fulfilling its oversight responsibilities by:
1. Reviewing the financial information that will be provided to the
shareholders and others; and
2. Examining the systems of internal controls management.
GENERAL RESPONSIBILITIES
(1) The audit committee provides open avenues of communication among the
internal auditors, the independent accountant and the board of directors.
(2) The audit committee must report committee actions to the full board of
directors and may make appropriate recommendations.
(3) The audit committee has the power to conduct or authorize investigations
into matters within the committee's scope of responsibilities. The committee
is authorized to retain independent counsel, accountants or others it needs
to assist in an investigation, and has funds to complete this work up to the
amount approved by the board.
(4) The committee will meet at least four times each year and more frequently if
circumstances make that preferable. The audit committee chairman has the
power to call a committee meeting whenever he or she thinks there is a need.
An audit committee member should not vote on any matter in which he or she
is not independent. The committee may ask members of management or others to
attend the meeting and is authorized to receive all pertinent information
from management.
(5) The committee will do whatever else the law, the company's charter or bylaws
or the board of directors requires.
RESPONSIBILITIES FOR ENGAGING INDEPENDENT ACCOUNTANTS AND APPOINTING THE
INTERNAL AUDITOR
(1) The audit committee will select the independent accountants for company
audits. The committee's selection is subject to approval by the full board
of directors. The audit committee also will review and set any fees paid to
the independent accountants and review and approve dismissal of the
independent accountants.
1
(2) The audit committee will review the appointment, replacement, reassignment
or dismissal of the chief financial officer or any other position identified
as the manager over the internal audit function within the company.
(3) The audit committee will confirm and assure the independence of the internal
audit function and the independent accountant, including a review of
management consulting services provided by the independent accountant and
the fees paid for them. If the independent accountant also serves as
providing services for internal audits, the audit committee will ensure that
the two functions are independent within their organization.
(4) The audit committee will consider, in consultation with the independent
accountant and the chief financial officer, the audit scope and procedural
plans made by the internal auditors and the independent accountant.
(5) The audit committee will listen to management and the primary independent
auditor if either thinks there might be a need to engage additional
auditors. The audit committee will decide whether to engage an additional
firm and, if so, which one.
(6) The audit committee will make sure that the chief financial officer and the
independent accountant coordinate the internal and external audits. The
purpose of coordinating these efforts is to assure completeness of coverage,
reduce redundancy and use audit resources effectively.
RESPONSIBILITIES FOR REVIEWING INTERNAL AUDITS, THE ANNUAL EXTERNAL AUDIT AND
THE REVIEW OF QUARTERLY AND ANNUAL FINANCIAL STATEMENTS
(1) The audit committee will ascertain that the independent accountant views the
board of directors as its client, that it will be available to the full
board of directors at least annually and that it will provide the committee
with a timely analysis of significant financial reporting issues.
(2) The audit committee will ask management, the chief financial officer and the
independent accountant about significant risk and exposures and will assess
management's steps to minimize them.
(3) The audit committee will review the following with the independent
accountant and the chief financial officer:
a) The adequacy of the company's internal controls, including
computerized information system controls and security.
b) Any significant findings and recommendations made by the independent
accountant or the internal auditor, together with management's
responses to them.
(4) Shortly after the annual examination is completed, the audit committee will
review the following with management and the independent accountant:
a) The company's annual financial statements and related footnotes.
b) The independent accountant's audit of and report on the financial
statements.
c) The auditor's qualitative judgements about the appropriateness, not
just the acceptability, of accounting principles and financial
disclosures and how aggressive (or conservative) the accounting
principles and underlying estimates are.
d) Any serious difficulties or disputes with management encountered
during the course of the audit.
e) Anything else about the audit procedures or findings that Generally
Accepted Auditing Standards requires the auditors to discuss with the
committee.
2
(5) The audit committee will consider and review with management and the chief
financial officer and when deemed necessary with the Board of Directors:
a) Any significant control findings during the year and management's
responses to them.
b) Any difficulties the internal auditor encountered while conducting
audits, including any restrictions on the scope of their work or
access to required information.
c) Any changes to the planned scope of management's internal audit plan
that the committee thinks advisable.
d) The internal audit budget and staffing.
e) Whether the internal audit process has complied with the Institute of
Internal Auditing's Standards for the Professional Practice of
Internal Auditing.
f) Any significant misappropriations of PCA funds discovered during the
audit year.
(6) The audit committee will review annual filings with the SEC and other
published documents containing the company's financial statements and will
consider whether the information in the filings is consistent with the
information in the financial statements.
(7) The audit committee will review the interim financial reports with
management, the independent accountant and the chief financial officer
before those interim reports are released to the public or filed with the
SEC or other regulators.
(8) The audit committee will prepare a letter for inclusion in the annual report
that describes the committee's composition and responsibilities and how the
responsibilities were fulfilled.
PERIODIC RESPONSIBILITIES
(1) Review and update the committee's charter annually. Submit the charter to
the Board of Directors for approval and have the document published at least
every three years in accordance with SEC regulations.
(2) Review policies and procedures covering officers' expense accounts and
perquisites, including their use of corporate assets, and consider the
results of any review of those areas by the internal audit function or the
independent accountant.
(3) Review, with the chief financial officer and the internal auditors, the
results of their examination of compliance with the company's code of
conduct.
(4) Review pending and approved legal and regulatory changes that may have a
material effect on the organization's financial statements, compliance
policies and programs.
(5) Meet with the chief financial officer, the independent accountant, the
internal auditor and management in separate executive sessions to discuss
any matters the committee or these groups believe should be discussed
privately with the audit committee.
(6) On at least an annual basis, review with PCA's counsel, any legal matters
that could have a significant impact on the organization's financial
statements, PCA's compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
(7) Annually prepare a report to shareholders as required by the SEC. The report
should be included in the company's annual proxy statement.
3
PROXY
PACKAGING CORPORATION OF AMERICA
1900 WEST FIELD COURT
LAKE FOREST, IL 60045
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints PAUL T. STECKO, RICHARD B. WEST and SAMUEL
M. MENCOFF as proxies (each with the power to act alone and to appoint his
substitute) and hereby authorizes them to represent and to vote, as designated
herein, all the shares of common stock of Packaging Corporation of America held
of record by the undersigned on March 16, 2001, at the annual meeting of
stockholders to be held on May 15, 2001 and at any and all adjournments thereof.
The undersigned also instructs Banker's Trust Company, a New York banking
corporation, the trustee of the Packaging Corporation of America Retirement
Savings Plan for Salaried Employees and the Packaging Corporation of America
Thrift Plan for Hourly Employees, to vote, as designated herein, all shares
votable by the undersigned and held of record by the trustee, if any. If there
are any shares for which instructions are not timely received, the trustee of
the plans will cause all such shares to be voted in the same manner and
proportion as the shares of the respective plans for which timely instructions
have been received. All voting instructions for shares held of record by the
plans shall be confidential.
Please sign and date on the reverse side and mail promptly in the enclosed
postage-paid envelope or otherwise to Equiserve Trust Company, P.O. Box 8274,
Edison, New Jersey, 08818-9205.
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TRIANGLE FOLD AND DETACH HERE TRIANGLE
5222
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
A VOTE "FOR" PROPOSALS 1 AND 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS:
FOR all nominees WITHHOLD AUTHORITY
listed (except as marked to vote for all Henry F. Frigon, Louis A. Holland, Dustin S. Huscher,
to the contrary) nominees listed Samuel M. Mencoff, Thomas S. Souleles, Paul T. Stecko
and Rayford K. Williamson
1. Election of / / / /
Directors
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space provided below.)
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2. PROPOSAL TO RATIFY FOR AGAINST ABSTAIN
APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT / / / / / /
PUBLIC ACCOUNTANTS
3. In their discretion, the proxies are authorized to vote upon such other
busi-ness as may properly come before the meeting and any and all
adjourn-ments thereof.
IF PROPERLY SIGNED, DATED AND RETURNED, THIS PROXY WILL BE VOTED AS SPECI -FIED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
Please sign exactly as your name appears on this proxy. Joint owners should all
sign. Executors, administrators, trustees, guardians and others acting in a
representative capacity should indicate title when signing. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
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SIGNATURE(S) DATE
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
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TRIANGLE FOLD AND DETACH HERE TRIANGLE